In testimony, Geithner recounted personally raising his concerns over LIBOR rigging with the governor of the Bank of England

By Luke Vargas

From sub-prime mortgages to credit default swaps and MF Global, the major financial scandals of the past few years have introduced the American public to a series of new institutions and complex transactions. The most recent acronym for non-economists to grapple with is the London Interbank Offered Rate (LIBOR), a benchmark exchange rate compiled by English banks estimated to support than $350 trillion in derivative assets, much of that within the United States.

The scandal centers around revelations that the rate was regularly manipulated by multiple banks in order to secure beneficial financial leverage, instead of functioning in its intended role of an independent metric to gauge the health of the banking sector. Although the extent of the harm wrought on American investments from LIBOR rigging is unknown, the Treasury Department’s knowledge of and actions related to LIBOR manipulation took center stage Wednesday when Secretary Timothy Geithner made a routine appearance before the House Financial Services Committee.

Committee Chairman Spencer Bachus (R-Ala.) used his allotted time to construct a timeframe of Geithner’s awareness of the LIBOR issue, including steps he took during the close of the Bush Administration while serving as the president of the Federal Reserve Bank of New York, as well as during the opening months of the Obama Administration.

In his testimony, Geithner recounted personally raising his concerns over LIBOR rigging with the governor of the Bank of England, as well as participating in briefings for the president’s financial markets working group beginning in spring of 2008. Geithner seemed confident that media accounts of rate manipulation coupled with repeated contact with British regulators were more than adequate measures for American officials to take.

“We thought the combination of the concerns in the public domain and the efforts we took directly with them provided more than enough basis for actions not just to reform the structure of the [LIBOR] rate, but to pursue the behavior that was obviously so consequential,” Geithner said.

Rep. Jeb Hensarling (R-Tex.) chose to direct his criticism at Geithner’s continued use of the LIBOR as a benchmark for Treasury Department actions even after Geithner had expressed concerns to British officials. “It appears you treated it almost as a curiosity or something akin to jaywalking, as opposed to highway robbery,” Hensarling said. “There are other interest rate indexes out there, how can a number that you know has been manipulated, how can that possibly be the best choice?”

The most stinging interrogation of the nearly three-hour-long hearing came from Rep. Scott Garrett (R-N.J.), who wondered how Geithner could acknowledge the gravity of LIBOR manipulation now without ever mentioning it during his previous testimony at the House.

“You have been before this committee countless numbers of times since 2008,” Garrett said, “and if this is the crime of the century, as so many people are reporting it to be, never once did you ever come and mention it as being a problem. Never once did you come here and say this is what you’re going to do about it. Never once did you say these are the new regulations that you would propose for Congress to take.”

Coming to Geithner’s defense, California Democrat Rep. Brad Sherman sought to paint the Treasury Secretary’s actions in a much different light, calling out House Republicans for framing Geithner as the culprit in a complex operation occurring abroad and out of his direct control.

“British banks lied to the British Banking Association. The Bank of England and other British regulators screwed up and didn’t catch them, even though they got extraordinary outside help from an ocean away,” Sherman said, referring to the efforts of Geithner and others to reach out to English officials. “And since some British bankers lied and some British regulators screwed up, the solution is obvious: we’ve got to blame America. In particular, we’ve got to find some American we can blame, preferably one of the opposite political party.”

While Geithner may have made his final regularly-scheduled appearance on Capitol Hill today before his resignation at the end of President Obama’s first term, he may well find himself back on the bench to testify again as lawmakers continue drilling deeper into the LIBOR scandal, with some suggesting that lawsuits against the British institutions involved in rate manipulation